Cypress' T.J. Rodgers on solar, politics, and capitalism, part 2

q&#38;a In the second half of a two-part interview, we ask the chief executive of Cypress Semiconductor about the lack of silicon in Silicon Valley, the company's solar subsidiary, and his political views.

q&a SAN JOSE--T.J. Rodgers is an unapologetic capitalist who happens to be the chief executive of San Jose, Calif.'s, Cypress Semiconductor. The two roles, as you'll soon see, are deeply intertwined.

Cypress' product catalog includes things like programmable logic devices, USB controllers, and SRAM chips--the basic building blocks of modern gadgets and computers.

Today in Silicon Valley, though, Rodgers is just as well-known for his role in buying and building up SunPower, which sells rooftop solar systems that provide power at prices competitive with utility rates. SunPower's market capitalization is more than $5 billion, which isn't bad for a company that Rodgers kept alive with his own money until his board came around.

In the political world, Rodgers is famous for his plain-spoken approach and verbal skewering of his opponents, who have included everyone from Jesse Jackson (complaining about the so-called digital divide) to a nun from the Sisters of St. Francis on Philadelphia. Sister Doris Gormley wanted racial and gender quotas for Cypress' board; Rodgers responded in detail, saying her advice was "immoral," and that "we pursue talent--and we don't care in what package that talent comes."

Rodgers recently married Valeta Massey in a ceremony at the Fairmont Hotel in San Jose. In a choreographed ceremony, he had a faux IRS agent stand up and object to the nuptials on grounds that the U.S. treasury would lose money. Silicon Valley uberlawyer Larry Sonsini provided some on-the-spot legal advice, and bagpipers provided a counterpoint.

This buccaneering, free-market spirit makes Rodgers an interesting fellow to interview, so I did. Here's a lightly edited (I abbreviated some of my questions and some of his answers) transcript of our conversation from last month. Part 1 of the Rodgers interview was published Thursday.

Q: The solar tax credit expires at the end of this year, which hasn't helped SunPower's share price. Should governments pick winners and losers by doing things like passing laws and tax credits boosting specific industries?
In general, I'm against subsidies to private industry. My testimony five times before Congress is against corporate welfare. Not only is it an unethical waste of taxpayer money, in general, it doesn't even help the industry it goes to.

Having said that, solar energy is very close to being at parity with power you buy at utilities, in certain situations. I'm talking about panels on your house. The subsidy the government gives is not going to the industry. The government, in effect, gives tax breaks and rebates to homeowners who want to put solar panels on their house. Therefore, they make the return-on-investment calculation. If you spend $20,000, your utility bill is going to pretty much vanish in California.

If you want to look at the analogy in Japan, 12 years ago, the Japanese had a subsidy. Now Japan is one of the largest solar nations in the world. We're behind them. You can look at the Japanese experience and say a finite subsidy to individuals launched the industry. Now it stands on its own. In the U.S., the ending of the subsidy would, in effect, say the industry is now on its own. That's not a catastrophic thing. It will slow down sales.

Would you support a renewal of the solar tax credit?
Let me give you an anecdote first. I once bought a company, Silicon Light Machines, that had a contract with the government. It was peanuts.

The people on the other side found out about this and said, "T.J.'s a hypocrite." I called up Milton Friedman and said, "I have an ethical problem. The company has a contract with the government, and I'm against corporate welfare."

Friedman answered me in an analogy. He said, "Do you believe in a flat tax--the government not meddling with or incentivizing behavior?" I said yes. He said, "So this year, you're not going to take any deductions?" I said, "Of course I will." He said, "So why would you do any less for your shareholders than you would do for yourself?"

You wrote an opinion article for the San Jose Mercury News in 2005, warning about technology, coupled with police power, drawing us "closer to Orwell's Big Brother." It's been more than two years since then--are we closer to or further away from that?
Closer. Because now we've got a federal government that doesn't care too much about personal freedom, and it's got some bad guys it can use to encroach on our privacy.

And if the Democrats win the White House?
There are good and bad Democrats. If you forget his personal traits, Bill Clinton was the second-lowest-spending president.

I don't identify either party as being good or bad. I think Hillary in the White House would be a disaster. She said everything she needed to say when having FBI files of her enemies. If Obama becomes the president, the war's over. That's great. On the economic side, I'm not sure he's (concerned with) economic freedom.

Now it looks like we're going to be in a continuous war for the rest of our lives. When I say continuous war, I don't mean Iraq. I mean a continuous war against terrorism that will pop up here and there. Giving (power) to people who will take away freedom to protect us.

On your Cypress job site, you list 138 jobs in India and the Philippines, and 130 jobs in the United States. China accounts for 23 more positions. How much of your future hiring do you see happening in the U.S. versus elsewhere?
Our policy is to hire in high-wage areas only where it's economically justified. So we have, for example, 15 years ago moved assembly and test to the Philippines. We were one of the last ones to do it. I tried to keep it in the U.S. by automating it, but it was a bad call.

In order to get a job at Cypress in the U.S., you have to have productivity that's five times higher than elsewhere in the world. It happens. But you'd better be doing things (and have skills) that are high-value and can't be done elsewhere.

We now no longer have a fab in Silicon Valley.

When we spoke in 2004, you said you had a test fab here.
We sold it. It's gone. The state of California, and Silicon Valley in particular, is very hostile to manufacturing. They've driven most of the manufacturing jobs out of California.

The organization founded by David Packard to make sure that regulations and taxes were reasonable in Silicon Valley used to be called the Silicon Valley Manufacturing Group. It's been renamed the Silicon Valley Leadership Group because it's failed so miserably.

Its president rides around on a bicycle to show the flag (and say) we need to have high taxes for what I call the Hooterville trolley--this tram system. It can't even pay its operating expenses from the fare box because nobody rides it.

Of course, when the state of California and Silicon Valley taxed the formation of factory jobs, Silicon Valley companies said "screw you" and moved out.

It singled out manufacturing jobs?
No. It was a sales tax. It applied to capital formation for major projects like factories. When, in fact, every other state would not tax you--it would give you a subsidy for building factories and jobs.

Silicon Valley is very hostile to business. Having said that, the new mayor of San Jose, Chuck Reed, is not. But he's kind of like a salmon swimming upstream; there's a lot of damage that's been done and a lot of things that have been changed irrecoverably.

If you were starting Cypress again today, would you locate it in San Jose or somewhere more business-friendly, with a lower cost of living?
Would I locate somewhere else? No. I put assembly test and fab here, foolish boy that I am.

I'd have headquarters here. The analogy that's usable here is, being in the high-tech business and not having your HQ in Silicon Valley is like being in the brokerage business and not having your office in New York. Silicon Valley is the technical capital of the world. Period. You've got to be here.

For example, I'd be foolish in Wall Street to have a very large accounting department (present there). In Silicon Valley, you put the jobs where you can earn the return on that job. Those jobs are typically, if you had to put one attribute on it, cross-function. I deal with technology. I deal with the press. I deal with lawyers. I deal with design. I deal with customers. That's a lot of fun. It's hard. It's challenging. That's the kind of people you can justify having in Silicon Valley.

What's your take on the current state of science and technology education, the quality of the education, and the ability of U.S. secondary schools to foster independent and skeptical thought?
When we finally made the decision to have a presence in Bangalore, you have this arrogant assumption--take chip design--that Silicon Valley is king for that, designing chips, and everyone else is third-world. I'll do design here and derivative products there.

What you find out pretty quick is that the talent you can assemble almost anywhere is equivalent in quality. As a matter of fact, in India, the quality is exceptional. One of the reasons is the market. I may have to recruit like hell and go financially overboard to convince a 75th percentile Stanford student to come here. I can go to India and recruit people from IIT (Indian Institutes of Technology).

In one way, India is kind of old-school. You take the tests. The tests are hard. The tests will change your life. By the time you're good enough to graduate, you are really smart, you are really educated, and you have worked your ass off for 25 to 26 years for an advanced degree.

You can hire really good talent in foreign countries. Where they fall off is their ability to do cross-functional thinking and work. They're not exposed to the information flow that you are here. The Internet helps, but it doesn't completely eliminate the problem. Their culture is not a Silicon Valley culture.

It differentiates us. It differentiates Americans. It differentiates Silicon Valley people from the rest of America. The concept of losing $38 billion dollars and trying to buy out union workers is so alien to Silicon Valley.

The last time we talked, you were having problems getting zoning approval with your wineries in the Santa Cruz mountains. What's happened since?
We're still determining if a vineyard is going to do environmental damage to an agriculturally zoned piece of land. Hopefully, we're in the last few months of that. We're worried about the river being polluted. Of course, the river is 6 inches wide and is dried up nine months of the year.

The NIMBYs who use the environment as a way to tell others what to do (are concerned). So I have to spend hundreds of thousands of dollars to prove that it's not polluted.

You haven't been at the heart of as many controversies recently--no more Jesse Jackson encounters or run-ins with the nuns. Have you mellowed?
No, I haven't mellowed at all. As a strategy to avoid controversy (at Dartmouth), I avoided left-right issues. I don't weigh in any of the great issues of the day, the Indian mascot, or the lack of it, etc.

It's also true in my life that I've moved away from the left-right controversy of the day, feeling obliged to say Ralph Nader is stupid and counterproductive when he says something that is stupid and counterproductive. I feel those people don't matter very much. In general, I don't feel--there are exceptions--the people who are in politics are worth my time. I'm much better off running my company, creating wealth, inventing technology.

I just don't feel the need to say something anymore. That's not mellowing at all.

It's a change in focus?
I'm working on substance. I do get dragged into that stuff, defensively. For instance, I did a rant on the Silicon Valley Manufacturing Group. It harmed my company. I wrote an editorial and said, "you're fired" in the last paragraph.

We've had a terrible attack on stock options. We've had one of the most evil groups in the U.S.--FASB (Financial Accounting Standards Board)--a bunch of theoretical accountants who sit in Connecticut, not one of which has ever started a business, trash the value of our company.

These are bad people. So I will go out of my way to label them as bad people and use provocative words like "evil" to describe them. That's because they're doing damage in my turf. Otherwise, I don't care.

About the author

Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
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